{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

# ch6 - Managerial Accounting Chapter 6 Cost Volume Profit...

This preview shows pages 1–11. Sign up to view the full content.

Managerial Accounting Chapter 6 - Cost Volume Profit Analysis (CVP)

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Chapter 6 Highlights What happens to CM as a firm experiences a change in activity? How do we compute CM ratios? How does a change in variable costs, volume, fixed costs and selling price affect a firm’s CM? How do we compute Break Even (BE) point? Let’s prepare a CVP graph How can we use CVP to determine level of output & target profit? Margin of Safety what is it? How do we calculate operating leverage & how does it relate to Net Income? Let’s compute the BE point for multi product company How does a change in sales mix affect CM & BE?
Overview of CVP Analysis CVP Analysis - relationship between selling prices, unit volume, per unit variable costs, total fixed costs & product mix sold CM - amount of sales net of variable expenses towards covering fixed expenses and then profits Per unit CM remains constant if per unit VC and Sales Price are unchanged

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Overview of CVP Example: CM Statement for Nord Corporation a exercise bike manufacturer: Total Per Unit Percent Sales (500 bikes) \$250,000 \$500 100% Less:Variable Costs 150,000 300 60% Contribution Margin 100,000 200 40% Less Fixed Exp 80,000 Net Income \$ 20,000
CVP Analysis CM can also be looked at using the formula: profit = (sp - vc)u - f sp=sales price vc=variable cost/unit u=units f=fixed costs

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
The Contribution Approach If Wind sells 400 units in a month, it will be operating at the break-even point .
Total Per Unit Sales ( 401 bikes) 200,500 \$ 500 \$ Less: variable expenses 120,300 300 Contribution margin 80,200 200 \$ Less: fixed expenses 80,000 Net income \$ WIND BICYCLE CO. Contribution Income Statement For the Month of June The Contribution Approach If Wind sells one additional unit (401 bikes), net income will increase by \$200.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
The Contribution Approach The break-even point can be defined either as: The point where total sales revenue equals total expenses (variable and fixed). The point where total contribution margin equals total fixed expenses.
Contribution Margin Ratio The contribution margin ratio is: For Wind Bicycle Co. the ratio is: Contribution margin Sales CM Ratio = \$200 \$500 = 40%

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Contribution Margin Ratio At Wind, each \$1.00 increase in sales revenue results in a total contribution margin increase of 40¢.
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 45

ch6 - Managerial Accounting Chapter 6 Cost Volume Profit...

This preview shows document pages 1 - 11. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online